Mar | Apr 2014


 
By Jennifer Ginn, CSG Associate Editor
New Year’s Day marked the 20th anniversary of the North American Free Trade Agreement, otherwise known as NAFTA. Hotly debated at the time, NAFTA was the first trade agreement to link the economies of two developed nations, the U.S. and Canada, with a developing nation, Mexico. While then-presidential candidate Ross Perot in 1992 called NAFTA a “giant sucking sound (of jobs) going south,” proponents said the agreement would create new markets for American goods.
So who was right? That depends, in large part, on whom you ask. Two state legislators with doctorates in economics discuss the effects of NAFTA on both the national and their state’s economy. Here are their thoughts.
 

Wyoming Sen. Cale Case

Case first took office in 1993 while NAFTA was being debated in statehouses across the country. The atmosphere in the legislature, he said, was one of fear.
It was “not so much a fear of Canada, of course, because we had been trading partners with Canada,” Case said. “Mexico was the piece everybody was afraid of. You had this big, underutilized economy down there with all this cheap labor that everybody worried about. They worried about production moving to Mexico and lost jobs.”
Nationally, Case said, there were some winners and losers. Some manufacturing did go south when the tariffs between Mexico and the U.S. dropped. But those job losses, he noted, were inevitable.
“When you have these displacements in manufacturing, it’s usually for a reason,” Case said.
“Manufacturing had sort of gotten, at that point, out of sync with the economic situation (of) our trading partners. It’s sort of unsustainable unless you want to have tariffs or some kind of artificial means to sustain it; that becomes a losing proposition over time.
“The fact that these changes did occur actually helped American manufacturing to figure out what they can do best and make a transition … Overall, the economy shifted into a different type of manufacturing or different types of products and services that were of higher value with this economic change.”
For Wyoming, Case said, NAFTA was “an overwhelming good thing.
“Remember what kind of state we are,” he said. “We produce minerals and we process minerals. We have seen our exports go up with Canada very significantly. At the start of NAFTA, it was like $38 million a year in trade with Canada, now it’s $330 million a year. … We didn’t have much trade at all with Mexico prior, now it’s been as high as $70 million a year.”
Nationally, however, the economic picture is more muddied.
“It’s positive, but not as overwhelmingly positive as we hoped,” Case said.
A 2013 report from the Congressional Research Service looking back at two decades of NAFTA said the agreement’s impact on the three nations’ economies was relatively small.
“In reality,” the report states, “NAFTA did not cause the huge job losses feared by the critics or the large economic gains predicted by supporters. The net overall effect of NAFTA on the U.S. economy appears to have been relatively modest, primarily because trade with Canada and Mexico account for a small percentage of U.S. GDP.”
Case said even if NAFTA hadn’t happened, the U.S., Canada and Mexico still would have increased trade with each other. But a united North America, he said, may be good in terms of global competition.
“We’ve seen the rise of China as an economic powerhouse in the world,” he said. “Would we have been even in a less relatively good position to do trade with China if it wasn’t for NAFTA?”
 

Connecticut Rep. Diana Urban

Urban, who is serving her 14th year in the Connecticut legislature, doesn’t see NAFTA as a boon to her state’s economy.
“Honestly, I think it’s a negative sum game,” she said. “I think we ended up on the losing end. Economically, perhaps, we were able to raise the standard of living in Mexico.
“What I see is an increasing gap between the rich and the poor in the United States, the increasing concentration of wealth in the upper one-tenth of 1 percent. … I would have to say, to a certain extent, that NAFTA was part of being able to increase that gap.”
Connecticut, she said, lost jobs and part of its identity after manufacturers started leaving the state.
“It’s taken us a long time in Connecticut to say what is our niche as jobs were going south and then further south, i.e. Mexico, as the full ramifications of NAFTA were felt,” she said. “We have managed now to start to turn that. … We’re getting more manufacturing that will uniquely be suited to Connecticut, where the jobs can’t be drained off.”
Urban said one legacy of NAFTA may be that more states are looking at minimum wage laws.
“If it (NAFTA) was supposed to be a great boon for everybody, then I wouldn’t see that this would be one of the major issues facing the states,” she said.
 

Common Ground

Although Case and Urban have different opinions about the legacy of NAFTA, both agreed that it made states pay more attention to federal trade negotiations and international trade.
“Wyoming has a free trade office … in Taiwan,” Case said. “The governor just went on a trade mission there. … We definitely pay more attention to it (international trade). It’s on our minds.”
“I think states are taking a more serious look at these kinds of trade agreements, trying to get a better handle on how it’s going to impact them domestically,” Urban said. “You have to be careful when something is sort of being sold to you as a panacea for everything. … I think we learned there are variables that come into that equation. … It means we really need to think things through.”